JOHANNESBURG — In December last year, we published a controversial piece written by an anonymous blogger called ‘Bitfinex’d’ about how a cryptocurrency called Tether poses threats to what, at the time, was a surging Bitcoin price. Tether is a cryptocurrency that targets pegging its price to the US dollar. The rationale behind Tether is that it can be used a safe have to exchange cryptocurrencies while acting as a bulwark to volatile prices. However, Bitfinex’d raised concerns about whether Tether is actually backed up by US dollars at all. A run on Tether could therefore then introduce several problems. The blogger has further argued that Tether may have been used by one of the world’s largest cryptocurrency exchanges, Bitfinex, to pump up Bitcoin prices. (Bitfinex is further said to be the creator of Tether.) It’s a dangerous cocktail. And that danger has been escalated in recent days amid a report on Bloomberg that an auditor parted ways with Bitfinex while the US Commodity Futures Trading Commission sent subpoenas on December 6 to Bitfinex and Tether. The situation is not looking good… – Gareth van Zyl

By Matthew Leising

(Bloomberg) — U.S. regulators are scrutinizing one of the world’s largest cryptocurrency exchanges as questions mount over a digital token linked to its backers.

The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer.

The Tether logo is seen on a smartphone in this arranged photograph taken in Washington, D.C. Tether, which started trading in 2015, is described as a stable alternative to bitcoin’s wild price swings. Photographer: Andrew Harrer/Bloomberg

Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday. While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there.

“We routinely receive legal process from law enforcement agents and regulators conducting investigations,” Bitfinex and Tether said Tuesday in an emailed statement. “It is our policy not to comment on any such requests.”

U.S. Commodity Futures Trading Commission

Erica Richardson, a CFTC spokeswoman, declined to comment.

Bitcoin, the biggest cryptocurrency by market value, tumbled 10 percent on Tuesday. It fell another 3.2 percent to $9,766.41 as of 9:19 a.m. in Hong Kong, according to composite pricing on Bloomberg. The virtual currency hasn’t closed below $10,000 since November.

Last year, Wells Fargo & Co. ended its role as a correspondent bank through which customers in the U.S. could send money to bank accounts held by Bitfinex and Tether in Taiwan. The firms sued the lender, but later withdrew the complaint. Torossian previously declined to identify the banks used by Bitfinex unless a non-disclosure agreement was signed, which Bloomberg News refused.

No Audit

While little public information exists about how tethers are created, market pricing suggests traders believe that each coin is worth $1. Trading the token for Bitcoin at Bitfinex has helped drive up Bitcoin prices, Barry Leybovich. who creates risk and compliance products for financial institutions interested in blockchain applications, said last month.

Phil Potter, chief strategy officer of Bitfinex, stands for a photograph in New York, on April 26, 2017. Photographer: Christopher Goodney/Bloomberg

A document on Tether’s website, compiled by accounting firm Friedman LLP, shows it had $443 million and 1,590 euros ($1,970) in bank accounts as of Sept. 15. Tether tokens were valued at $420 million that day, according to Coinmarketcap.com. Tether hasn’t identified the banks where that money was held, and their names were blacked out in the document.

“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable timeframe,” Tether said.